A new study by the law firm of Seyfarth Shaw confirms what we’ve been seeing in the headlines in recent months:  when the economy goes down, lawsuits go up.

The firm’s Fifth Annual Workplace Class Action Litigation Report identifies several major trends in the world of employment lawsuits:

1.  Class Actions Up.  The financial meltdown is resulting in increased class action litigation, including ERISA class actions seeking recovery for 401(k) losses and post-RIF discrimination and WARN Act cases.  In fact, employment-related class actions are the #1 exposure driving corporate legal budget expenditures.

2.  Wage & Hour Up.  The volume of wage and hour suits continues to “increase exponentially.”  The number of Fair Labor Standards Act (FLSA) class actions outnumbered all other employment-related private suits.  The biggest wage and hour explosion is at the state level, particularly in California, Florida, Illinois, Massachusetts, New Jersey, New York, Pennsylvania and Texas.

3.  $$$ Up.  Settlements/damages paid out on workplace class actions continues to rise, especially in ERISA cases.  The top ten settlements alone in 2008 totaled more than $18 billion.

What will 2009 bring?  Probably more of the same, unfortunately.  Each of the above trends is expected to continue to grow in 2009.  “The findings in this year’s report illustrate that the trend we’ve analyzed for the past few years continues unabated:  there is an explosion in class action and collective litigation involving workplace issues,” said J. Stephen Poor, Seyfarth’s Managing Partner.

The lesson?  Take proactive action NOW.  Identifying and addressing class action vulnerabilities should be at the top of every employer’s list of 2009 priorities. 

In other words, imagine what the world’s toughest plaintiffs’ firm would sue you for and fix it before they get a chance.

There are two things most HR professionals strive to avoid:  (1) class actions and (2) jail.  An HR professional at an Iowa meat-packing plant managed to find her way into both.

Agriprocessors Inc. was hit with nearly $10 million in fines for violating various wage and hour laws.  Among the alleged violations:

• $9,643,600 for 96,436 unlawful clothing deductions affecting 2,001 employees (reducing their wages by $192,597)
• $339,700 for 3,397 unlawful “sales tax/miscellaneous” deductions affecting 1,073 employees (reducing their wages by $72,190)
• $4,900 for failing to pay 42 employees their final paychecks

In other words, by attempting to unlawfully save about $270,000, the company now must pay more than 37 times that amount.

In a separate matter, Laura Althouse, one of the company’s HR professionals, pled guilty to charges of conspiring to harbor undocumented aliens and aggravated identity theft in connection with a May 2007 raid that uncovered nearly 400 undocumented workers.  Althouse faces up to 12 years in prison and up to $500,000 in fines.  Similar charges are pending against another Agricprocessor HR professional.

The Lessons

They’re pretty obvious here.  Know and follow the law, especially the nuances of wage and hour and immigration law.  Failure to do so could be hazardous to your career and — possibly — your freedom.

To avoid this happening to you, check out the handy materials under the “Tools & Tips” Section of the Blawg.

A federal judge has ordered Manhattan’s Saigon Grill to pay more than $4 million to three dozen $2-an-hour delivery workers.

The case is truly one of the most egregious I’ve ever seen.  Here are some of the findings from Judge Michael Dolinger’s 79-page decision.

• The delivery workers were paid only $520 a month despite the fact that many of them worked more than 260 hours apiece.
• The employer unlawfully deducted pay (sometimes as much as $200) for infractions such as letting the door slam on the way out of the restaurant and failing to log in deliveries.
• The employer failed to reimburse the employees for buying and maintaining bicycles used for the deliveries.
• Records kept by the employer were woefully incomplete and wrongfully destroyed.  The records that were kept contradicted sworn testimony from the owners that the employees worked less than they claimed.
• The employer retaliated against several employees by firing them after they notified the company of their intent to file a complaint.

In short, the judge found that owners Simon and Michelle Nget “showed no regard whatsoever for legal requirements in connection with their wage policies.”

Some of the delivery workers will receive as much as $328,000 as a result of the judgment.  “I’m very, very happy about this decision,” said Yu Guan Ke, one of the plaintiffs.  He said he plans to use the funds to buy health insurance for his family.

More money could be coming the plaintiffs’ way.  A hearing in December will determine whether the Ngets must pay the plaintiffs’ attorneys fees and costs.  In addition, the judge has yet to rule on the retaliation claims, for which the plaintiffs are seeking more than $1.5 million plus punitive damages.

Stay tuned.  Click here to read more on this case from the New York Times.

Fulbright & Jaworski’s always-fascinating annual Litigation Trends Survey was released this week.  Here are some of the key findings:

• Employment law disputes remain the #1 legal headache for U.S. businesses.
• 1 in 4 companies has at least one lawsuit with more than $20 million at stake.
• 1 in 10 companies spends more than $10 million on litigation each year.
• Arbitration ain’t cheap either:  1 in 4 companies spends more than $100,000 per dispute.
• 1 in 4 companies is facing a class action (a dramatic drop from 6 in 10 last year).
• Race, gender and wage & hour claims are the most costly.
• The education, financial services and engineering/constsruction sectors are facing the biggest increases in employment claims.
• The #1 area of dissatisfaction with outside attorneys is cost management.

Click here to download the full report.

Wage and hour claims continue to dominate the headlines . . .

Fastenal Pays $10 Million

Fastenal Co., a construction supply distributor, agreed to settle overtime claims for $10 million.  Employees in California, Oregon and Pennsylvania alleged that the company improperly classified assistant managers as exempt, failed to pay overtime and violated meal period laws.  The company denied any wrongdoing and said it entered into the settlement to avoid legal fees and the uncertainty/distraction of a trial.

Interwall Pays $1.7 Million

The California Attorney General reached a settlement with Interwall, a Southern California drywall company, for alleged overtime, meal-period and record-keeping violations.  The company agreed to pay $1.4 million in damages, $200,000 in fines, $131,000 in back payroll taxes and nearly $100,000 in attorneys’ fees and other costs. 

Among other things, the company allegedly shifted employees among various corporate entities to avoid overtime as part of an effort to cut costs and underbid competitors.  The company denied any wrongdoing.

The Lessons

Once again, one of the best ways to avoid big-ticket liability is to ensure that your company fully complies with all wage and hour laws.  This is especially critical with exempt/non-exempt classifications, meal/rest period laws and record-keeping requirements.  Courts (and plaintiffs’ attorneys) continue to be very hard on employers where there’s even a hint of impropriety.

As a starting point, check out our Fair Labor Standards Act (FLSA) Cheat Sheet here or under the “Tools & Tips” section of the Blawg.

Yesterday, United Health Group agreed to pay $895 million and to implement sweeping corporate governance changes as part of a tentative settlement of a stock option backdating lawsuit.

United Health agreed to:  (1) take the company’s performance into account when setting executive compensation; (2) create a shareholder-elected position on its board of directors; (3) implement stringent director-independence policies; (4) mandate an options holding period for all executives; and (5) require shareholder approval prior to any option repricing.

Excluded from the settlement are the company’s former CEO, William McGuire and former top lawyer, William Lubben.  In 2007, McGuire agreed to pay the Securities and Exchange Commission $468 million related to the backdating allegations.  Several lawsuits remain pending against the two former executives.

The Lesson

Stock option lawsuits have rocked the business and HR world for the past several years.  As discussed previously here on the Blawg, some HR execs have even gone to jail when they failed to blow the whistle on backdating schemes.

HR leaders have a tremendous opportunity to influence others to do right — or to do wrong.  One of our Top Ten Greatest Hits of Employment Law Advice is “The Mom Test.”  When making decisions, ask yourself:  “What would my mom think if she read about this on the front page of the paper?”  If it would disappoint mom, don’t do it.

The lesson is simple:  failing to do the right thing as an HR leader can land you and your company in legal hot water.  It could cost you your job, your money and your reputation.  Don’t let that happen to you.  Know the law, follow it and help others to do the same.

Yesterday, a Minnesota judge awarded a class of more than 56,000 Wal-Mart employees $6.5 million in back pay for meal and rest period violations.  An October 20 penalties hearing could result in an additional $2 billion in damages.

The Facts

The employees alleged that Wal-Mart required them to work off the clock for training and didn’t allow full meal and rest periods in line with state law.  Wal-Mart denied the charges and argued that it fully complied with state law.

One of the centerpieces of the case was a series of internal audits conducted by Wal-Mart itself.  The audits showed that employees were missing breaks and one audit rated every Minnesota store “unsatisfactory” in the handling of rest periods.  Wal-Mart tried to argue that the audits were flawed.  The court rejected that argument, finding that it was Wal-Mart’s responsibility to correct or stop the audits if they weren’t accurate.

The court also pointed to the fact that Wal-Mart stopped using an electronic punch in/out system.  Once it did so, it no longer had a means to track break periods accurately.

The Lessons

The primary lesson is pretty simple:  pay employees for time spent working.  Break periods aren’t break periods if employees aren’t truly relieved of their duties.  With respect to meal periods, the Department of Labor states:  “The employee is not relieved if he is required to perform any duties, whether active or inactive, while eating.”  The solution is simple as well:  create a clear break policy and enforce it fairly and consistently.

Also, be careful when you conduct internal audits.  They can be a great way to monitor and improve compliance.  However, if you ignore the results and fail to make appropriate changes, you run the risk of creating Exhibit A for your next lawsuit.

(Special thanks to the Ohio Employer’s Law Blog)

The Kroger Co. has agreed to settle a class action race discrimination lawsuit for $16 million.

The lawsuit alleged that Kroger discriminated against African-American employees in Alabama, Georgia, Kentucky, Ohio, Tennessee and Texas in promotions and pay.  The plaintiffs also alleged that they were subjected to racial harassment.

In addition to the $16 million, a proposed consent decree would require Kroger to:

• establish minimum qualifications for all management positions 
• create a pay rate monitoring system that would allow store manager decisions to be overturned if unfair
• provide an annual report, including salary and promotion data, to the plaintiffs’ law firm

Kroger sent a letter to its employees that said:  “The plaintiffs who initiated this lawsuit seven years ago obviously felt strongly that the company was not treating them fairly or respectfully.  No one in our company should feel this way.”  The company added:  “We have taken steps over the past several years to build an inclusive culture that demonstrates our commitment to all associates.”  Among other things, the company said it has hired a chief diversity officer and created cultural councils to help promote inclusiveness.

Legendary New York City restaurant Tavern on the Green agreed to settle sex, race and national origin harassment and retaliation claims for $2.2 million (EEOC v. Tavern on the Green Ltd., S.D.N.Y., No. 07-8256 (June 2, 2008)).

The Allegations

The EEOC alleged that the restaurant engaged in “severe and pervasive” harassment of female, African-American and Hispanic employees.  “Verbally, female employees were subjected to repeated comments related to sexual positions, sexual acts, female genitalia and even demands for sexual favors,” said Kam Wong, attorney for the EEOC.  “Physically, female employees were also grabbed, groped and fondled.”  The EEOC also alleged that one of the restaurant’s top managers severely harassed African-American and Hispanic employees, calling them a variety of epithets and ridiculing their culture.  Employees who complained had their hours and pay cut, according to the EEOC.

The Settlement

The $2.2 million settlement will be divided among approximately 50 employees who worked for the restaurant between 1999 and 2007.  In addition, the consent decree requires the restaurant to:  (1) refrain from rehiring the alleged harassers; (2) establish a hotline for discrimination complaints; (3) conduct annual employment law training; and (4) distribute a revised anti-discrimination policy to all employees.

Tavern on the Green was established in 1934 and describes itself as the “highest-grossing independently owned restaurant in the United States, with annual revenues in excess of $34 million and over half a million visitors a year.”  The restaurant denied any wrongdoing and said it was “pleased this long-pending matter has been amicably settled.”

The Lesson

The EEOC alleged that the employer ”knew or should have known of the severe and pervasive harassment, yet failed to exercise reasonable care to prevent and correct promptly the harassing behavior.”  Don’t let that happen to you.  Promptly and thoroughly investigate any and all complaints of discrimination or harassment, using the investigation checklist under “Tools & Tips” on the left as a guide.

In a case that is highly instructive for employers, Dillard’s department stores has agreed to pay $500,000 to settle sex harassment claims filed by twelve female employees.

The suit revolved around allegations of harassment against Scot McGinness, an assistant manager at the company’s Palmdale, California store.  After several female subordinates complained of harassment by McGinness, the company transferred him to a management position at its Westminster, Colorado store.

The critical question facing the company at that point was a common one:  Should we tell anyone at the employee’s new location about the allegations?

Dillard’s answer to that question apparently was “no.”  Not too long thereafter, a female employee at the Westminster store complained that McGinness inappropriately touched her.  McGinness was given a verbal warning.  Ten months later, an 18-year-old employee complained that McGinness had physically and verbally harassed her.  Dillard’s fired McGinness based on those allegations.

In its press release announcing the settlement, the EEOC blasted Dillard’s decision not to inform the second location about the allegations against McGinness:  ”By failing to notify the Colorado store about this man’s sexual harassment in California at the time of his transfer to Colorado, Dillard’s permitted its Westminster employees to go in harm’s way.”

The result?  In addition to paying $500,000, Dillard’s agreed to implement a comprehensive anti-harassment prevention program, including training on how to conduct investigations and a process for notifying stores prior to transferring an employee with a history of harassment.  Dillard’s also agreed to provide reports to the EEOC of any sex harassment complaints made against the company.

The lessons?  My suggestion to avoid a similar result is fairly simple:  investigate thoroughly, take action promptly and communicate appropriately. 

If the investigation conclusion is that harassment occurred, the “punishment” should fit the crime.  The employer should take the following into consideration:  (1) the severity and pervasiveness of the conduct; (2) the alleged harasser’s past record; and (3) the company’s past discipline in prior circumstances.

The goal is fairness to all parties — the alleged victim(s), the alleged harasser and other employees.

If, as in the Dillard’s case, the decision is to transfer the alleged harasser to another location, communication is key.  The investigation results should be communicated to management at the new location on a “need to know” basis.  Those informed should then take whatever reasonable steps are necessary to reduce risk of further harassment.  General all-employee communications such as “Hey, a harasser has joined the team!” aren’t a good idea due to defamation and fairness concerns.  Instead, focus on fairly and consistently enforcing existing anti-harassment policies and follow the tips outlined above.